THE UNCERTAINTY OF VALUATION

Joseph Ho

The Valuation Journal, 2021, vol. 16, issue 1, 4-37

Abstract: Valuation is an estimate of the hypothetic price (the market value) of an asset that could be obtained on a given date (valuation date) under a given scenario (assumptions). When the relevant data and information have been collected and verified, the valuer can use his skillset, knowledge and experience (SKE) and by employing any one or a combination of the automated valuation models or manual mathematical calculations to arrive at his valuation. The combination of the data and information, scientific analysis, and subjective view of the valuer formulas to arrive at an estimate of the value of a property, including accompanying with uncertainty. There are roughly three types of uncertainties in valuation that could be classified into two categories – within valuation process (may be measurable) and out of valuation process (normally unmeasurable). However, there may exist interdependence and correlation between these uncertainties, and need to take into careful consideration during the valuation process. Past experiences indicated that valuation uncertainty will occur after the outbreak of an external event, but the impact to the market will be temporary. Once there are sufficient post-event data, valuer can reliably measure the value of a property. Moreover, cautious steps are required to minimize uncertainty and to make adjustment on the risk to ensure no error has been made in the valuation. Various professional guidelines suggested ways to deal with valuation uncertainty – to make the valuation process be transparent and to draw the attention of the client to the uncertainty. While it is well understood that a margin of error always exists, valuer, by his professional conduct, owes a duty of care to produce an informed and error free valuation to his client.

JEL-codes: C10 D46 R30 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vaj:journl:v:16:y:2021:i:1:p:4-37

Access Statistics for this article

The Valuation Journal is currently edited by Ion Anghel

More articles in The Valuation Journal from The National Association of Authorized Romanian Valuers Contact information at EDIRC.
Bibliographic data for series maintained by Stefan Alexandru ().